Choosing E-Commerce Chargeback Protection by Category
Ecommerce chargeback protection comes in three categories that step in at different moments. Pre-transaction tools screen orders before they ship. Alert tools catch a dispute before it becomes a chargeback. Insurance pays you back after the chargeback happens.
For years I worked chargeback support. My job was to open up a merchant's payment setup and find what was going wrong.
Most people shopping for "chargeback protection" can't tell you which of the three categories fixes their problem. So they buy the wrong one first.
Pick the category that matches your gap. Then you stop paying for a backstop when you needed a block.
Key takeaways
- Chargeback protection splits into three categories set by when each one acts.
- Start with alerts, because they keep the chargeback off your record entirely.
- Protection can cost an extra 0.4% and cap payouts at $25,000 yearly.
- Alerts stopped up to 91% of chargebacks for merchants on our platform.
- Pre-transaction screening charges a fee only on the orders it approves.
What is chargeback protection?
Chargeback protection is any tool that cuts your chargeback losses, and it splits into three categories by when it acts. What a tool can do for you comes down to that timing.
You can't substitute one for another, because each one catches a different kind of dispute. Here's where each one sits in the life of a sale:
You can run tools from more than one category at once, and plenty of merchants pair screening with alerts.
The question to answer is which category you buy first.
Chargeback protection tools compared by category
Pre-transaction screening, chargeback alerts, and post-chargeback insurance cover every protection tool you can buy. Here they are in the order they act:
- Pre-transaction fraud screening stops risky orders before they ship.
- Chargeback alerts refund a disputed order before a chargeback files.
- Post-chargeback insurance reimburses you after a chargeback posts.
Each category below covers what the tool does, what you pay, and what it leaves alone.
1. Pre-transaction fraud screening
Riskified and Signifyd screen your orders before they ship, then take on the chargeback risk for whatever they approve. You pay only on approved orders.
Both score orders for fraud as they come in, then approve or decline in real time. Each one reads an order the way a risk analyst would, weighing the card, the address, the device, and the order value.
Riskified's pricing page says: "Pay only for approved orders that generate revenue. We guarantee approval rates and cover any chargebacks." It bets its own money on each approval. A decline costs it nothing. A bad approval costs it the order.
Signifyd charges a variable percentage of the order total, billing only on the orders it approves. You can set how far its guarantee reaches, from fraud-only cover up to a full liability shift. Pin that range down at signing, because fraud-only cover leaves every other dispute on your books.
Screening only catches the fraud it can read from your checkout data. A customer who disputes a real charge still gets through, and so does a friendly fraud claim.
2. Chargeback alerts
A chargeback alert reaches you after your customer calls their bank, but before the bank opens a chargeback. Refund in that window and the case stays off your ratio. Nothing has been recorded yet.
A cardholder disputes a charge and the bank sends a pre-dispute alert. It travels through Ethoca (Mastercard) or Verifi (Visa, which operates RDR and CDRN). Your provider matches it to the sale on the amount, date, descriptor, and card BIN.
All four have to line up. A refund on the wrong order pays a customer who never complained. Visa's side runs on Verifi alerts.
Each network covers a different slice of your disputes, and our guide to RDR, CDRN, and Ethoca breaks the differences down.
Mastercard's leg runs on Ethoca alerts. We charge $29 for those and $15 each for RDR and CDRN, with no monthly minimum. So your bill tracks how many disputes you get, not how much you sell.
In our dataset, merchants who enroll and act on their alerts prevent up to 91% of chargebacks. Tim's Coffee, a Shopify retailer we wrote a case study on, cut chargebacks 89%.
Alerts stay costly when the real problem is your billing descriptor. Every charge a customer can't place creates a new alert you pay for. Set your descriptor to the store name they saw at checkout.
3. Post-chargeback insurance
Post-chargeback insurance pays you back after a chargeback is recorded, up to a cap, so it's the last category to buy. The chargeback still counts against you, and you still pay the chargeback fee.
These products charge a fee on your whole transaction volume and pay out on a capped amount. The fee scales with your sales while the payout scales with your losses.
You're buying reimbursement, and only reimbursement. Your processor still counts the chargeback against your ratio.
Stripe charges an extra 0.4% per transaction for Stripe Chargeback Protection and pays back up to $25,000 a year. Cover applies to fraud disputes on Stripe Checkout. It leaves out three categories:
- Recurring payments, which is most of a subscription business's revenue.
- Non-delivery claims, where the customer says the order never arrived.
- Dissatisfaction claims, where the product arrived and disappointed.
Pull last year's chargebacks from your processor dashboard. Sort them by reason code. The share under fraud on Stripe Checkout is all the policy will pay on.
Our full Stripe chargeback policy breakdown covers how those disputes are handled.
Say your chargeback volume runs past what $25,000 a year would refund. Or most of your disputes are people telling their bank the product never arrived.
Either way, you pay 0.4% on every sale for a policy that won't cover most of your disputes.
How do you evaluate a tool in each category?
Judge screening on what it wrongly blocks, alerts on what they reach, and insurance on what it excludes. Each category needs its own checklist, because each one solves a different problem and fails in a different way.
Run one generic list across all three and you'll ask the wrong questions. Screening vendors quote a false-decline rate. Alerts vendors quote a per-alert price.
Every question below has an answer the vendor can give you as a number or a written term. Check these:
- Pre-transaction: ask for the false-decline rate on your product category.
- Pre-transaction: confirm whether the guarantee covers non-fraud disputes.
- Alerts: ask which networks the vendor is enrolled in, and which BINs that covers.
- Alerts: compare the per-alert price and any monthly minimum.
- Insurance: read the annual cap against last year's chargeback total.
- Insurance: list the excluded dispute types before you sign.
Two of those answers decide the deal on their own. A false-decline rate tells you how much good revenue screening will cost you. The excluded types tell you which chargebacks insurance will refuse.
Run your numbers through our chargeback ROI calculator before you commit to any category.
Hiring a chargeback analyst is a staffing call rather than a fourth category. Divide their salary by your yearly chargeback count. Then compare that against the per-alert prices above.
How we sourced our data
The "up to 91% of chargebacks prevented" figure in the alerts section comes from our own platform data, measured across the merchant accounts we run alerts for.
The number reflects merchants who enrolled on our platform. They're a self-selected group who had already decided chargebacks were worth solving. They act on their alerts fast, and they came to us with a dispute problem big enough to notice.
What you get depends on your own dispute mix, the networks you sell on, and how fast you act on each alert.
FAQ
What chargebacks aren't covered by protection?
Merchant error sits outside every category, so a mis-shipped order or a duplicate charge stays your cost. Most insurance products also exclude non-delivery and dissatisfaction disputes, and pre-transaction guarantees usually cover fraud only.
Is fraud protection different from chargeback protection?
Fraud protection stops bad orders at checkout, while chargeback protection covers the wider set of disputes that follow a sale. Vendors often swap the two phrases even though they cover different risk.
What is the cost of chargeback protection?
Costs run three ways. Screening takes a percentage of approved order value, alerts take a flat fee per alert, and insurance adds a percentage of your total transaction volume.
Who offers guaranteed chargeback protection?
Riskified and Signifyd both sell a guarantee, taking on chargeback liability for the orders they approve at checkout. The guarantee applies only to approved orders and usually only to fraud disputes.
Do I need protection if I already screen for fraud?
Yes, because screening and alerts bill on different events. Screening charges you per approved order all year, while alerts charge only when a dispute arrives.
